Business model

Head of PureGym: keeping faith in the business model

Like any modern gym-goer, Humphrey Cobbold, chief executive of PureGym, keeps a close eye on the numbers.

When gyms were closed at the start of the UK’s first lockdown in March 2020, many saw them as places ripe for viruses. But the boss of the UK’s largest gym chain has decided to take the lead in developing industry protocols for gyms to open safely.

Cobbold says business leaders should speak up on issues where they have expertise. He began lobbying to support the sector, appearing regularly in the media. “I think companies tend to step aside a bit,” he says. “There are concerns about how the government is supporting businesses. . . but in this case, I felt that we should stand up and be visible.

He had his work cut out for him. Cobbold presented the industry protocols to Deputy Chief Medical Officer Sir Jonathan Van-Tam and other SAGE scientists during a visit to Park Royal PureGym in west London. When Van-Tam saw the sleek fitness studio, he suspected a smokescreen as he was shown PureGym’s smarter site. But Cobbold, 57, told her: ‘It’s £23 a month. . . This is what a modern gym looks like.

Fearing a government blind spot on the UK gym sector, which consultants Deloitte valued at around £5.5billion in 2019, he wanted to build an evidence base on the industry’s Covid-19 infectivity . “You can take the man out of McKinsey, but you can’t take McKinsey out of the man,” he jokes, having spent his early career in management consulting.

PureGym led the development of gym infectivity data with industry association ukactive. An early study found a total of 78 coronavirus cases in 22 minutes of gym visits. Repeated lobbying, backed by this data and other studies, helped convince policymakers that gyms were relatively safe. They would open indoors in the UK before pubs after the 2021 lockdown.

While Cobbold had his eye on reopening, he also had to lead the “immediate crises” of the pandemic. This included discussing rent deferrals with the company’s 250 landlords and making the decision to cover furlough wages for PureGym’s 2,000 personal trainers who had not received government payments. At the start of 2020, the company also bought Danish operator Fitness World for £350m. The company lost nearly £200m, down from £39.6m in 2019, a success that Cobbold described at the time as “frankly awful”.

And the heavy losses continued into the past year. PureGym had a net debt of over £800m, against just £70.9m in revenue, in the nine months to September 2021. On top of that a failed IPO attempt . Cobbold and CFO Alex Wood “didn’t really have a day off between May and December,” he said, as they prepared to list – something Cobbold had already tried at the company in 2016 .

But PureGym had to “raise quite a bit of capital to repay its debt and raise enough cash”. As public offerings slowed towards the end of 2021, investor confidence waned and PureGym retreated. Cobbold says he was “frustrated rather than disappointed” that “the markets weren’t as responsive as we needed them to be.”

Despite high debt levels, Cobbold’s confidence comes from the company’s record. In 2016, PureGym was worth around £550million – it’s now valued at over £1.5billion, he says. “It frustrates me that public market investors couldn’t see through some of the short-term swings in the market.”

Indeed, getting through the pandemic took trust in the model, as well as a “leap of faith” that attendance would rebound, he says. Now, PureGym expects to benefit gym goers who want to trade in their memberships to manage the cost of living crisis.

And its offer remains resolutely sober: the Oval room in south London where we meet is not glamorous. But, like its 300 UK venues, the space is airy and fully functional for 20-somethings spending their Wednesday mornings there at a cost of around £25 a month.

Cobbold is proud of PureGym’s “budget status” and affordability. “I think it’s the standard gym product that people are looking for. Of course there are people who are happy to pay £100 or £150 to go somewhere with a little more granite and a little more glass. and a bit more chrome,” says Cobbold, but that’s not PureGym’s model.

The company offers a no-contract subscription and variable pricing model, with costs ranging from £46.99 per month for a standard subscription in Clapham, South London, to £17.99 per month for the same plan in Grimsby, in the North East of England. It’s a sign, he says, of how to run a simple business in a “sophisticated” way.

Three questions to Humphrey Cobbold

Who is your leadership hero?

The late Andrew Grove, former CEO of Intel. He wasn’t a great sighted leader or anything, but he had a few key principles. He said the problem with most successful businesses is that they become proud of that success. That success leads to complacency and complacency is almost always a prelude to failure. You have to have this healthy paranoia philosophy.

What was the first leadership lesson you learned?

The importance of authenticity. If you’re leading, people will follow you, and you can only reasonably expect them to follow if they believe the person you’re featuring is real.

What would you do if you weren’t CEO?

A scientist. I studied science at Cambridge, I wanted to be a nuclear physicist. I did a few science research internships, but it wasn’t as exciting as reading about Einstein and I was seduced by an interest in business.

Undeterred by the failure of the initial public offering, Cobbold sought financing elsewhere and began a small-scale expansion in the United States. “We halted the IPO process after a week and began discussions with private equity providers the following week.” KKR would eventually invest £300m to fund PureGym’s international expansion plans. It’s a familiar path: in 2017, US private equity group Leonard Green & Partners bought a majority stake in PureGym from CCMP Capital Advisors.

Cobbold rejects any suggestion that under private equity ownership he does not have management control of PureGym. Decisions such as expanding into the United States or launching a Peloton-style bike are made in consultation with the private equity owners of PureGym.

“As a general manager you have to be clear and direct,” he says, “but it’s not just my way or the highway.” His collaborative approach leads to “vigorous debates”, he says, but also fosters trust in his leadership. “Leonard Green is 11,000 miles and eight time zones away,” he says. “They know they depend on us and my sense of the market.”

We’re talking in the week following John Foley stepping down as Peloton’s general manager. A “nerdy” cyclist and former managing director of online sports retailer Wiggle, Cobbold says he uses the Zwift bike platform, rather than Peloton. And while he admires the company, he says she “probably got a little carried away with things.” PureGym’s U.S. investment will be small, opening three venues will risk around $20 million, he says. “If we build even a modestly sized business in America, it could be 100 or 200 sites that could be worth $300 million to $500 million.”

The cautious optimism not to “bet the company” on expansion recalls Van-Tam’s warnings to avoid “ripping the pants off” of pandemic restrictions. With a trained eye on the data, Cobbold says, “If it works, great, if it doesn’t work, we’ll have learned why it doesn’t work. »